oversight

Audit of Controls Over Purchase Card Use in the Office of Vocational and Adult Education..

Published by the Department of Education, Office of Inspector General on 2005-07-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                       UNITED STATES DEPARTMENT OF EDUCATION

                                       OFFICE OF INSPECTOR GENERAL




                                                 July 1, 2005
                                                                                         CONTROL NUMBER
                                                                                           ED-OIG/A19F0006
Susan Sclafani
Assistant Secretary
U.S. Department of Education
Office of Vocational and Adult Education
400 Maryland Avenue, SW
Washington, DC 20202-7100

Dear Ms. Sclafani:

This Final Audit Report (Control Number ED-OIG/A19F0006) presents the results of our audit
of Controls Over Purchase Card Use in the Office of Vocational and Adult Education (OVAE).
The objectives of our audit were to assess the current effectiveness of internal control over the
purchase card program and the appropriateness of current purchase card use in OVAE.


                                           BACKGROUND

The Government purchase card is a less costly and more efficient way for offices and
organizations to purchase needed goods and services directly from vendors. The purchase card
eliminates the need to process purchase requests through procurement offices and avoids the
administrative and documentation requirements of traditional contracting processes. The
Department of Education (Department) selected Bank of America to provide purchase card
support and services.

The Office of the Chief Financial Officer (OCFO), Contracts and Acquisitions Management
(CAM), coordinates the purchase card program within the Department and acts as the liaison
with Bank of America. OVAE’s Executive Officer is responsible for administering the purchase
card program in that office. Approving officials (AOs) and alternate approving officials (AAOs)
are appointed by the Executive Officer and are the primary officials responsible for authorizing
cardholder purchases and ensuring timely reconciliation of cardholder statements.

On April 18, 2000, the Office of Inspector General (OIG) issued a report entitled, “Results of
OIG Review of OVAE’s Internal Controls Over the Procurement of Goods and Services,”
(Control Number ED-OIG/A&I 2000-OVAE). OIG reported deficiencies in OVAE’s internal
control over the purchase card program, including approval of purchase card statements,
warrants for cardholders, training, segregation of duties, lack of familiarity with Department
policies, and lack of written OVAE policies and procedures.

                      400 MARYLAND AVE., S.W. WASHINGTON, D.C. 20202-1510

       Our mission is to ensure equal access to education and to promote educational excellence
Ms. Sclafani                                                                    Page 2 of 8




This audit is part of a review of the purchase card program being performed Departmentwide. A
random sample of transactions across the Department, as well as all transactions over $2,500,
charges to blocked merchant category codes, and potential split purchases are being reviewed.
This report represents the results of the portion of the random sample and other transaction
categories reviewed in OVAE. A summary report will be provided to the Department’s Chief
Financial Officer upon completion of the audits in individual offices.


                                    AUDIT RESULTS
While improvements were noted from the prior OIG review of purchase card activity, we found
that OVAE needs to further improve internal control over purchase card use. We found that
OVAE did not always obtain and maintain adequate documentation to support purchases and did
not centrally file purchase card statements and supporting documentation consistent with
Department policy. We also found that OVAE did not reconcile credit transactions timely, and
procurement staff did not complete purchase card refresher training. These issues occurred
because OVAE staff were not always familiar with Department policy, and did not consistently
follow OVAE’s requirements for preapproval of purchases. AOs did not ensure that cardholders
submitted complete supporting documentation prior to approving the statements for payment.
OVAE’s policy on filing purchase card documentation was not consistent with Department
requirements. Unreconciled transactions had not been addressed because OVAE was waiting for
a former cardholder to provide details needed to reconcile these transactions, and because OVAE
did not closely monitor this area by reviewing reports of unreconciled transactions. OVAE had
not established a process to ensure all staff completed refresher training as required.

Without adequate supporting documentation, OVAE does not have assurance that purchases
were appropriate and were made in accordance with Federal regulations, Department policy and
procedures, and OVAE guidelines. Approving purchases without adequate supporting
documentation could result in payment for goods and services that were not received and
increases the Department’s vulnerability to potential misuse or waste of government resources.
Decentralized filing of purchase card documentation may result in loss of required information
and does not ensure the records are easily accessible. Untimely reconciliation of credit
transactions decreases the amount of funds available for other uses. Cardholders that do not
complete purchase card training may not be aware of current policy and procedures concerning
appropriate use of the purchase card.

Issues noted above regarding lack of familiarity with Department policy and training were also
reported in the prior OIG review of OVAE’s purchase card activity.

In its response to the draft audit report, OVAE concurred with the findings and provided
corrective actions to address each of the recommendations included in our report. The complete
text of OVAE’s response is included as Attachment 1 to this report.



                                        ED-OIG/A19F0006
Ms. Sclafani	                                                                     Page 3 of 8



Finding 1 	 OVAE Needs to Further Improve Internal Control Over Purchase
            Card Use

OVAE needs to further improve internal control over purchase card use. We reviewed nine
purchases made by two cardholders totaling $11,199 and found:

    •	 One cardholder made one purchase totaling $525 that did not include documentation to
       support that the services were received.
    •	 The same purchase above was not preapproved by OVAE’s Executive Officer.
    •	 Another purchase totaling $1,082 included annotations of “Received” by OVAE staff, but
       not the date received for some of the items.

We also noted that the record of purchase and record of receipt for one additional purchase, and
solicitation of bids from small businesses for another purchase over $2,500, were not originally
included in the file. Since OVAE staff were subsequently able to locate supporting
documentation for these two purchases from other sources, these transactions were not included
in the exceptions above.

We also noted improvements were needed regarding filing of purchase card documentation,
timeliness of reconciliations, and training, as follows:

    •	 OVAE did not centrally file purchase card statements and supporting documentation
       consistent with Department policy. This documentation was maintained by the
       cardholders during the year and then provided to the Executive Officer for filing at the
       end of the fiscal year.
    •	 Transactions were not always reconciled timely. On February 23, 2005, OCFO sent to all
       cardholders and approving officials a detailed list of all unreconciled transactions from
       July 2001 through January 2005. This list included five OVAE credit transactions
       totaling $233 for a cardholder whose account had been closed in September 2004.
    •	 One cardholder and an AAO had not completed Governmentwide refresher training since
       calendar year 2001. The cardholder transferred to another PO in September 2004, but
       should have completed the refresher training during calendar year 2003.

Departmental Directive (Directive) OCFO: 3-104, “Government-wide Commercial Purchase
Card Program,” Section VI, defines cardholder and AO responsibilities. The Directive states,

        H. The Cardholder is responsible for . . .2. Purchasing goods or services in
        accordance with established Department policy, procurement regulations, and
        individual internal office procedures . . .6. Providing documentation to support
        purchases for AO approval and official record keeping. This documentation
        includes receipts, invoices, logs, etc.

        F. An Approving Official (AO) is responsible for . . .6. Reviewing, validating,
        and approving for payment the Cardholder's reconciled bank statement each
        billing cycle . . .14. Reviewing all management reports of Cardholder activity

                                         ED-OIG/A19F0006
Ms. Sclafani                                                                        Page 4 of 8



        under his or her authority . . .15. Reviewing appropriateness of purchases. This
        includes determining individual purchases are appropriate, that the goods or
        services were properly received and accepted, and that the payment was proper.

 Section VII.B.4.e of the Directive includes additional AO requirements that state, “Upon
approval of the bank statement, forward documentation to a central filing location for retention.”

With respect to requirements for timely reconciliation and approval of purchase card statements,
Section VII.B of the Directive states,

        2. The Cardholder must perform the following duties within 5 working days of
        receipt of his/her monthly statement: a. Reconcile the Cardholder's bank
        statement with his or her own records and with obligations recorded in the
        Department's financial system. Confirm receipt of items.

        4. The AO is required to perform the following duties within 5 working days
        after receipt of the reconciled bank statement from the Cardholder, (but no later
        than 15 calendar days from the bank statement date): a. Ensure each purchase
        was made for official use and in accordance with established internal procedures.

In addition to the general timeliness requirements above, OCFO establishes specific deadlines to
complete these tasks when it transmits monthly electronic statements to cardholders and AOs for
reconciliation and approval.

Section VII.C.6 of the Directive states,

        It is required that all employees involved in the Purchase Card Program attend
        mandatory training prior to receiving the card and/or actively participating in the
        Program. Refresher training for AOs, AAOs, Cardholders, Principal Officers,
        [Executive Officers] EXOs, and Program Managers is required every 2 years.

OVAE also established guidelines for purchase card use, including preapproval of purchases,
specific requirements for documenting receipt, and filing of purchase card documentation.
OVAE’s guidelines state,

        If funds are available and the dollar amount is within the cardholder's limit, the
        request is forwarded to the Executive Officer to sign off or approve for
        processing.

        Upon receipt and acceptance of the goods or services, the cardholder shall notate
        on the documentation the date of receipt . . ..

        After the Approving Official reconciles and approves the monthly transactions for
        payment, the cardholder's statement and support documentation are filed by the
        cardholder in a secured or locked location at or near their workstation. After the

                                           ED-OIG/A19F0006
Ms. Sclafani                                                                        Page 5 of 8



        close of each fiscal year, all of OVAE's cardholder files are stored together in a
        file drawer in the Executive Office, across from room 11-129 PCP.

Cardholders were not familiar with Department requirements to document receipt and
acceptance of goods or services. In some cases, OVAE staff were not aware records of receipt
must be obtained and retained with purchase card documentation. OVAE staff stated records of
receipt were provided to staff that requested the goods. Cardholders did not consistently follow
OVAE internal guidelines regarding preapproval of purchases. In the case noted, the purchase
was preapproved by the AAO, but not by the Executive Officer as required by OVAE’s
guidelines. In addition, AOs did not ensure cardholders submitted complete supporting
documentation in accordance with Department policy and OVAE guidelines prior to approving
the statements for payment.

OVAE’s guidelines requiring purchase card documentation to be filed with the cardholder until
after the end of the fiscal year conflicts with Department policy requiring documentation to be
centrally filed upon approval of the statement each month. OVAE procurement staff were not
familiar with the Department policy in this area. With regard to reconciliation, the Executive
Officer stated that the outstanding transactions had not been reconciled because OVAE was
waiting for the former cardholder to provide details needed to reconcile these transactions.
OVAE staff also did not review management reports of outstanding transactions, and as such, did
not closely monitor this area. OVAE stated that the AAO was not aware that he was due for
refresher training. In addition, OVAE did not have a system to ensure all staff participating in
the purchase card program took refresher training when required.

Without adequate supporting documentation, OVAE does not have assurance that purchases
were appropriate and were made in accordance with Federal regulations, Department policy and
procedures, and OVAE guidelines. Approving purchases without adequate supporting
documentation could result in payment for goods and services that were not received and
increases the Department’s vulnerability to potential misuse or waste of gove rnment resources.
Decentralized filing of purchase card documentation may result in loss of required information
and does not ensure the records are easily accessible. Untimely reconciliation of credit
transactions decreases the amount of funds available for other uses within the PO. Cardholders
that do not complete purchase card training may not be aware of current policies and procedures
concerning appropriate use of the purchase card.

Subsequent to our review, OVAE stated that it had implemented corrective actions to address the
weaknesses we identified. OVAE also stated that it had reconciled the outstanding credits on the
former cardholder’s account, and had revised its internal guidelines to eliminate the conflict with
Department policy and to strengthen internal control over the purchase card program.




                                          ED-OIG/A19F0006
Ms. Sclafani	                                                                    Page 6 of 8



Recommendations:

We recommend that the Assistant Secretary for OVAE hold the Executive Officer, Approving
Officials, and cardholders accountable for their responsibilities in the purchase card program by
establishing a process to:

1.1	    Ensure that staff participating in the purchase card program are familiar with Department
        policy and procedures and OVAE guidelines for the program.

1.2	    Ensure cardholders consistently obtain and maintain appropriate supporting
        documentation for purchases as required by Department policy and OVAE guidelines,
        and that this documentation is filed with the purchase card statements.

1.3	    Require the AO to thoroughly review reconciliation packages provided by cardholders to
        ensure adequate supporting documentation is maintained.

1.4	    Revise and implement internal purchase card guidelines to ensure that purchase card
        statements and supporting documentation are maintained in a central file consistent with
        Department policy.

1.5	    Require AOs to review reports of unreconciled transactions and ensure purchases are
        timely reconciled and approved for payment. Ensure AOs and cardholders work with
        OCFO staff, as necessary, to resolve unreconciled transactions.

1.6	    Ensure that staff involved in the purchase card program complete refresher training every
        two years as required by Department policy.


OVAE Response:

In its response to the draft audit report, OVAE concurred with the findings and provided
corrective actions to address each of the recommendations included in our report. OVAE plans
to conduct annual training sessions, develop a checklist to ensure appropriate supporting
documentation is maintained in the file, conduct monthly reviews of reports of unreconciled
transactions, and document when staff complete required training. OVAE also reported that it
had already revised its internal guidelines to ensure that purchase card documentation is
maintained in a central file consistent with Department policy.


                  OBJECTIVES, SCOPE AND METHODOLOGY
The objectives of our audit were to assess the current effectiveness of internal control over the
purchase card program and the appropriateness of current purchase card use in OVAE.
To accomplish our objectives, we performed a review of internal control applicable to OVAE’s
administration and management of its purchase cards. We evaluated the prior OIG review of the

                                         ED-OIG/A19F0006
Ms. Sclafani                                                                     Page 7 of 8



purchase card program in OVAE to determine issues previously reported. We reviewed
requirements related to the purchase card program in the Treasury Financial Manual, Federal
Acquisition Regulation, Office of Management and Budget memoranda, and Bank of America’s
contract and task order. We also reviewed Departmental Directives, OVAE and OCFO
procedures and guidance applicable to the purchase card program.

We conducted interviews with staff in OCFO and OVAE to obtain information and an
understanding of the purchase card program. We also reviewed training records for staff
participating in the program. To test controls and evaluate the appropriateness of purchase card
use, we reviewed supporting documentation provided by OVAE staff for purchases made during
the scope period noted below.

The scope of our review included purchases made by Washington, DC, (Headquarters)
cardholders during the period July 1, 2003, through June 30, 2004. We used sampling and data
mining to select purchases for review. From the universe of purchases made by Department
Headquarters cardholders, we randomly selected purchases of $50 or more for review. The
random sample was chosen to provide a representative review of purchases across the
Department. We also identified high-risk categories of potentially inappropriate purchases and
reviewed all transactions in those categories – purchases over $2,500, charges to blocked
merchant category codes, and potential split purchases. In OVAE, the random sample included
seven purchases. High-risk purchases for OVAE included two purchases over $2,500. No
purchases to blocked merchant codes, or potential split purchases were identified for OVAE.
Overall, nine purchases totaling $11,199 made by two cardholders were included in our review.

In total, OVAE Headquarters cardholders made 180 purchases totaling $65,762 during the scope
period. The purchases we reviewed represented 5 percent of the total number of transactions,
and 17 percent of the total amount of purchases made by OVAE during the period. Since the
random sample was selected based on the universe of all purchases of $50 or more made by
Headquarters cardholders in the Department, the results of this review cannot be projected to the
universe of OVAE purchases.

We relied on computer-processed data initially obtained from Bank of America’s Electronic
Account Government Ledger System to select cardholder purchases made during the scope
period. This data was also recorded in the Department’s Contracts and Purchasing Support
System and reconciled by OVAE and OCFO staff through Education’s Central Automated
Processing System. We verified the completeness and accuracy of the data by reviewing
cardholder statements, invoices, receipts, and supporting documentation to validate purchase
amounts recorded in these systems. Based on our testing, we concluded that the computer-
processed data were sufficiently reliable for the purpose of our audit.

We also reviewed reports prepared by OCFO staff that reported purchase card transactions that
were overdue for reconciliation. These reports were part of the “Fast Facts” reports distributed
monthly to all Department staff through the Department’s Intranet. We did not validate the
accuracy of these reports, as we used them for informational purposes only, as an indicator of
reconciliation timeliness.

                                        ED-OIG/A19F0006
Ms. Sclafani                                                                     Page 8 of 8




We conducted fieldwork at Department offices in Washington, DC, during the period January
12, 2005, through March 14, 2005. We held an exit conference with OVAE management and
staff on March 29, 2005. Our audit was performed in accordance with generally accepted
government auditing standards appropriate to the scope of the review described above.


                            ADMINISTRATIVE MATTERS

Corrective actions proposed (resolution phase) and implemented (closure phase) by your office
will be monitored and tracked through the Department’s Audit Accountability and Resolution
Tracking System. Department policy requires that you develop a final corrective action plan
(CAP) for our review in the automated system within 30 days of the issuance of this report. The
CAP should set forth the specific action items, and targeted completion dates, necessary to
implement final corrective actions on the finding and recommendation contained in this final
audit report.

In accordance with the Inspector General Act of 1978, as amended, the Office of Inspector
General is required to report to Congress twice a year on the audits that remain unresolved after
six months from the date of issuance.

Statements that managerial practices need improvements, as well as other conclusions and
recommendations in this report represent the opinions of the Office of the Inspector General.
Determinations of corrective action to be taken will be made by the appropriate Department of
Education officials.

In accordance with the Freedom of Information Act (5 U.S.C. § 522), reports issued by the
Office of Inspector General are available to members of the press and general public to the extent
information contained therein is not subject to exemptions in the Act.

We appreciate the cooperation provided to us during this review. Should you have any questions
concerning this report, please call Michele Weaver-Dugan at (202) 245-6941. Please refer to the
control number in all correspondence related to the report.

                                        Sincerely,




                                        Helen Lew /s/

                                        Assistant Inspector General for Audit Services 





                                         ED-OIG/A19F0006
                        UNITED STATES DEPARTMENT OF EDUCATION                                                 Attachment 1

                                 OFFICE OF VOCATIONAL AND ADULT EDUCATION




                                                JUN 23 2005
                                                                                             CONTROL NUMBER
                                                                                               ED-OIG/A19F0006

Michele Weaver-Dugan, Director
Operations Internal Audit Team
U.S. Department of Education
Office of Inspector General
400 Maryland Avenue, S.W.
Washington, DC 20202-1510

Dear Ms. Weaver-Dugan:

This memorandum is in response to the Draft Audit Report (Control Number ED­
OIG/A19F0006), dated May 26,2005, that presents the results of the Office oflnspector
General (OIG) audit of Controls Over Purchase Card Use in the Office of Vocational and
Adult Education (OVAE). The objectives of the audit were to assess the current
effectiveness of internal controls over the purchase card program and the appropriateness
of current purchase card use in OVAE.

Thank you for the information on the results of the audit. I am committed to the
Secretary's goal to strive for zero tolerance in all management and administrative areas.
It is very important to me that OVAE's purchase card program complies with all federal
regulations, departmental policies and procedures, and OVAE's guidelines. I have
informed the OVAE Deputy Assistant Secretary for Programs and Management and the
OVAE Executive Officer, who is also OVAE's Approving Official for authorizing
cardholder purchases, that I expect OVAE's purchase card program to be exemplary and
serve as a model to be emulated by the department. Thank you for noting in your report
that OVAE has improved since the OIG review of purchase card activity conducted in
April 2000. More importantly, I appreciate that your report identifies additional
opportunities by which OVAE can improve. I take the findings and recommendations
seriously, and I have directed my staffto begin corrective actions immediately.

OVAE concurs with the report findings. The report identified a need to further improve
our internal controls over purchase card use. Specifically, the report states that OVAE
did not:
    • 	 always obtain and maintain adequate documentation to support purchases;
    • 	 centrally file purchase card statements and supporting documentation consistent
        with departmental policy;
    • 	 reconcile credit transactions totaling $233 timely; and
    • 	 complete purchase card refresher training for procurement staff.

                                    400 MARYLAND AVE., S.W., WASHINGTON, D.C. 20202
                                                           www.ed.gov

        OUT   mission is to ensure equal access to education and to promote educational excellence throughout the nation.
The report recommended that the Assistant Secretary hold the Executive Officer,
Approving Officials (AOs), and cardholders accountable for their responsibilities in the
purchase card program by establishing a process to:

1.1	   Ensure that staff participating in the purchase card program is familiar with the
       department policy and procedures and OVAE guidelines for the program.

1.2	   Ensure cardholders consistently obtain and maintain appropriate supporting
       documentation for purchases, as required by department policy and OVAE
       guidelines, and that this documentation is filed with purchase card statements.

1.3	   Require the Approving Official (AO) to thoroughly review reconciliation
       packages provided by cardholders to ensure adequate supporting documentation is
       maintained.

1.4	   Revise and implement internal purchase card guidelines to ensure that purchase
       card statements and supporting documentation are maintained in a central file
       consistent with department policy.

1.5	   Require AOs to review reports of unreconciled transactions and ensure purchases
       are timely reconciled and approved for payment. Ensure AOs and cardholders
       work with OCFO staff, as necessary, to resolve unreconciled transactions.

1.6	   Ensure that staff involved in the purchase card program completes refresher
       training every two years as required by department policy.

In accordance with the requirements of the One- ED initiative, the following corrective
actions are proposed to address each of the report’s recommendations:

1.1	   To ensure that OVAE staff participating in the purchase card program are familiar
       with the department policy and procedures and OVAE guidelines for the program,
       the OVAE Executive Officer (who is also OVAE’s AO) will conduct an annual
       training session with the Office of the Chief Financial Officer (OCFO) and the
       OVAE Alternate Approving Official (AAO) and cardholders to review and
       discuss all relevant policies, procedures, and guidelines.

1.2	   To ensure that OVAE cardholders consistently obtain and maintain appropriate
       supporting documentation for purchases, as required by department policy and
       OVAE guidelines, and that this documentation is filed with purchase card
       statements, the Executive Officer/AO will conduct an annual training session with
       OCFO and the OVAE AAO and cardholders to review and discuss all relevant
       policies, procedures, and guidelines. In addition, a checklist to identify
       supporting documents used in the completion of each transaction will be
       developed and maintained in the file.
1.3	   To ensure that the AO thoroughly reviews reconciliation packages provided by
       cardholders to ensure adequate supporting documentation is maintained, the
       Executive Officer/AO or the AAO will initial off on all items on the checklist and
       sign and date the checklist.

1.4	   We have already acted on the recommendation to revise and implement internal
       purchase card guidelines to ensure that purchase card statements and supporting
       documentation are maintained in a central file consistent with department policy.
       OVAE’s internal purchase card guidelines were revised in April 2005 to require
       that statements and supporting documents be maintained in a central file. The
       Executive Officer/AO will spot check the location of files and use a department
       financial report to randomly spot check individual files to verify that purchase
       documents are properly filed. The Executive Officer/AO will post the OVAE
       internal purchase card guidelines on our Web site.

1.5	   To ensure that AOs review reports of unreconciled transactions, that purchases are
       timely reconciled and approved for payment, and that AOs and cardholders work
       with OCFO staff, as necessary, to resolve unreconciled transactions, the
       Executive Officer/AO will review the monthly OCFO reports on unreconciled
       transactions, document all transactions over 60 days old, and hold OVAE
       cardholders responsible for resolving all transactions within 90 days. The
       Executive Officer/AO will work with OCFO to resolve complex transactions.

1.6	   To ensure that staff involved in the purchase card program completes refresher
       training every two years, as required by department policy, the Executive
       Officer/AO will identify OVAE's cardholders and AAO; formally inform them
       (and their supervisors) of refresher training available at OCFO's Web site of
       Government-Wide Commercial Purchase Card Training at
       http://tln/cbt1/purchase%20card/attendancereview.cfm; and document when these
       staff complete the required training.

I have attached a proposed corrective action plan to this memorandum that addresses
each of the report’s recommendations. I will see to it that the OVAE Executive Officer
sends you a quarterly update. Again, I want to thank you for your assistance in ensuring
that OVAE’s purchase card program is a leader in the department. Please contact me or
Nicholas Dorka, the OVAE Executive Officer, if you have any questions concerning this
response.

                                            Sincerely,



                                            Susan Sclafani
                                            Assistant Secretary for
                                            Vocational and Adult Education